FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Relationship Between FDIC's Regulations (Part 332)
and the Florida Security for Public Deposits Act

FDIC-82-6

March 4, 1982

Thomas A. Brooks, General Counsel

As you know, we have been considering the applicability of section
332.1(d) of the FDIC rules and regulations (12 C.F.R. § 332.1(d)) to
the Florida Security for Public Deposits Act. On its face, the
regulation would prohibit a state nonmember bank from guaranteeing the
obligations of other banks in the manner the Florida statute requires
for a bank to become a public depository. The regulation was
promulgated because guaranteeing the obligations of another is, as a
general rule, an unsafe or unsound banking activity.

The FDIC has allowed two limited exceptions to this regulation. One
of the exceptions covers the case in which a bank has a "substantial
interest" in the performance of the transaction covered by the
guarantee. The "substantial interest" test balances the unsafe
and unsound aspects of the guarantee with the benefits derived from the
transaction. Heretofore this has been applied only to transactions on
the asset side of the ledger.

We have determined that it is appropriate to include the situation
created by the requirements of the Florida Security for Public Deposits
Act within the "substantial interest" exception to our
regulation. A bank must enter into the guarantee agreement in order to
become a public depository. Since accepting deposits is an integral
part of the banking business, there is a substantial interest in the
transaction. A state nonmember bank would be subject to a great
competitive disadvantage if it is not able to accept public deposits in
the same manner as thrifts, state member and national banks.

Although we have felt compelled to arrive at the foregoing
conclusion with respect to the relationship between our regulation and
the requirements of the Florida Security for Public Deposits Act, we
note that we are concerned about the Florida statute from the
standpoint of public policy. This agency has long been an opponent of
attempts to increase deposit insurance coverage to 100 percent. The
effect of the Florida program is to provide 100 percent deposit
insurance for public funds, which we believe will tend to further
undermine the discipline of the
marketplace.